Beyond insurance protection, permanent life policies offer multiple potential lending benefits for policyholders. Clients aren’t always aware of them. To help give them the right support – and be of greater value – here are 10 things advisors should know and do.
- Position insurance lending as a flexible strategy. Show your clients how they can use the built-up cash surrender value (CSV) in their life insurance policy as collateral for a line of credit.
- Help clients look into the future. Regardless of your clients’ current situation, they’re almost certain to need to borrow money in the future. Anticipate this when discussing their permanent life insurance requirements. By raising the idea of insurance lending and putting everything in place, you can give clients the ability to borrow down the road, for everything from “rainy day” needs to investment opportunities.
- Point out the often-overlooked features of insurance lending. There is no specific term, and the loan can be in place until the death benefit proceeds are paid out. The minimum payment is interest only, and clients can pay down or access available credit seamlessly with no fees.
- Use insurance lending to help your high-net-worth clients employ debt more strategically. Traditionally, high-net-worth clients will go to their bank to obtain personal or corporate lines of credit, usually unsecured. These can be expensive in terms of fees and interest rates. With insurance lending, there’s greater flexibility for access to and paydown of credit, at a much lower cost and interest rate.
- Know how an Immediate Financing Arrangement (IFA) strategy can help balance cash flow and insurance considerations. An IFA targets high-net-worth clients who have substantial life insurance needs and, therefore, significant insurance premiums. Such clients can afford to pay the premiums on a permanent life insurance policy but prefer unhindered access to their cash flow. IFAs provide that through annual loan advances after clients pay their insurance premiums.
- Help clients see how insurance lending can make for a more lucrative retirement. Clients with built-up CSV within their policy can access the accumulated value through an Insured Retirement Program (IRP). This line of credit becomes supplemental retirement income. Even better, the income stream is tax free.
- Learn how to match different CSV lending products to the client. Any client who has a permanent life insurance policy with built-up CSV can benefit from insurance lending. There are various forms of CSV lending solutions, from an Access Line of Credit, to an IRP, to an IFA. It’s worth discussing the various options with your clients to see what might suit them best.
- Know the best time to raise the idea of insurance lending with clients. One is the early stages of a permanent life insurance policy, even if there’s no immediate need to borrow funds. This discussion should also take place as part of an annual financial review with clients and whenever the need arises. Just probing clients’ goals and plans can reveal an opportunity.
- Dispel misconceptions about insurance lending. Clients and advisors alike can have three big ones. One, high-net-worth clients don’t need to borrow. In fact, they often look for ways to strategically borrow funds to invest in their business. Insurance lending provides quick and convenient access to funds. Two, insurance lending means clients are taking on more debt. Actually, the line of credit is there if and when the client needs it. If they aren’t using it, there’s no interest cost. Three, it’s complicated to qualify for the loan. Not so, as the loan is cash-secured. We just require evidence of debt servicing and/or a clean credit bureau history.
- Shift the perception of permanent insurance. Most clients, and many advisors, view permanent insurance as a passive asset. The reality is that it can become a valuable investment and cash-flow planning tool. Insurance lending provides quick and easy access to cash that’s sitting idle in a life insurance policy. That makes permanent insurance an active and highly versatile asset.
To learn more about the benefits of Manulife Bank’s insurance lending solutions, visit the Manulife Bank Advisor Portal.